South Korea to Lift Short-Selling Ban on Finance Stocks

SEOUL, South Korea — South Korea’s financial regulator said Wednesday that it would lift a ban on covered short-selling of publicly traded financial sector stocks, citing improved market conditions as well as a desire to bolster trading activity.

The Financial Services Commission said investors could start covered short-selling activities for the stocks of financial companies on Thursday.

The ban had been in place since Oct. 1, 2008, an emergency measure to reduce volatility during the global financial crisis. The regulator said the need to retain the measure had diminished because the stock market had stabilized.

“The covered short-selling ban reduced the market’s efficiency and led to a significant decline in trading volumes for the sector,” the regulator said in a statement. Covered short-selling takes place when investors borrow shares in a company and sell them on, typically as a bet that they can repurchase those stocks at a lower price and return them to the lender at a later date.

The regulator said that the daily average trading value for financial stocks, which account for 12 percent of total market capitalization, fell to 352.5 billion won, or $329.1 million, during the first half of 2013, from 935.2 billion won in 2008. It said that ending the covered short-selling ban on the sector would help bolster activity.

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However, the regulator has no plans to lift the existing ban on naked short-selling for stocks listed in South Korea. Naked short-selling occurs when an investor shorts a stock without having first borrowed the shares.

The regulator also said it planned to submit new legislation to Parliament with the aim to require individual investors to publicly disclose major covered short-selling positions starting sometime in the first half of 2014.

Based on the regulator’s plan, an investor with a short-selling position in a company that is greater than 0.5 percent of outstanding shares would need to publicly disclose that position on the Korea Exchange website.